7 Bargaining Power of Buyers Examples You Need to Know

Bargaining power of buyers is one of the five forces that shape the competitive environment of any industry. It refers to the ability of customers to negotiate lower prices, better quality, or more services from the sellers. The higher the bargaining power of buyers, the lower the profitability of the industry.

Key Takeaways

Bargaining power of buyers is one of the five forces that shape the competitive environment of any industry.

Bargaining power of buyers depends on various factors that affect the ability of customers to negotiate lower prices, better quality, or more services from the sellers.

Bargaining power of buyers affects profitability and strategy by influencing the price that sellers can charge for their products and services.

In this article, we will look at some examples of bargaining power of buyers in different industries and how it affects the strategies of the firms. We will also provide some tips on how to deal with high bargaining power of buyers and increase your competitive advantage.

Bargaining Power of Buyers Examples

1. Online Retail Industry

The online retail industry is characterized by low switching costs, high price sensitivity, and a wide range of choices for customers. These factors give buyers a high bargaining power and force online retailers to compete on price, delivery, customer service, and product variety. Online retailers also face the threat of new entrants and substitutes, such as social media platforms, e-commerce marketplaces, and direct-to-consumer brands.

To cope with high bargaining power of buyers, online retailers need to differentiate themselves from their competitors and create loyal customers. Some of the strategies they can use are:

• Offering free shipping, returns, and discounts
• Providing personalized recommendations, reviews, and ratings
• Creating loyalty programs, rewards, and referrals
• Enhancing user experience, design, and functionality
• Building trust and reputation through security, privacy, and transparency

2. Airline Industry

The airline industry is highly competitive and cyclical, with low profit margins and high fixed costs. Buyers have a high bargaining power due to the availability of information, low switching costs, and homogeneous products. Buyers can easily compare prices, schedules, and services of different airlines and choose the best option for their needs. Airlines also face the threat of substitutes, such as trains, buses, cars, or video conferencing.

To deal with high bargaining power of buyers, airlines need to segment their market and offer different value propositions to different customer groups. Some of the strategies they can use are:

• Offering premium services, such as business class, lounge access, priority boarding, and in-flight entertainment
• Providing low-cost services, such as no-frills flights, baggage fees, and online check-in
• Creating loyalty programs, frequent flyer miles, and partnerships
• Expanding network coverage, destinations, and routes
• Improving operational efficiency, fuel efficiency, and cost management

3. Smartphone Industry

The smartphone industry is dominated by a few global players, such as Apple, Samsung, Huawei, and Xiaomi. Buyers have a high bargaining power due to the rapid technological changes, low switching costs, and high product differentiation. Buyers can easily switch from one brand to another based on their preferences, needs, and budget. Smartphones also face the threat of substitutes, such as tablets, laptops, or smartwatches.

To counter high bargaining power of buyers, smartphone manufacturers need to innovate constantly and create unique features and benefits for their products. Some of the strategies they can use are:

• Offering high-quality products, such as design, performance, camera quality, and battery life
• Providing value-added services, such as apps, cloud storage, and software updates
• Creating brand loyalty, recognition ,and image
• Leveraging network effects, ecosystems, and platforms
• Developing new markets, segments, and niches

4. Coffee Industry

The coffee industry is fragmented and competitive ,with many players offering similar products and services .Buyers have a high bargaining power due to the low switching costs ,high price sensitivity ,and diverse tastes .Buyers can easily switch from one coffee shop to another based on their convenience ,price ,quality ,and atmosphere .Coffee also faces the threat of substitutes ,such as tea ,juice ,or water .

To overcome high bargaining power of buyers ,coffee shops need to differentiate themselves from their rivals and create loyal customers .Some of the strategies they can use are :

• Offering specialty products, such as organic, fair trade, or flavored coffee
• Providing exceptional service, such as friendly staff, free Wi-Fi, or loyalty cards
• Creating a unique ambience, such as music, art, or theme
• Building a strong brand identity, personality, and culture
• Engaging with customers through social media, events, or promotions

5. Automobile Industry

The automobile industry is highly competitive and capital-intensive ,with many players offering similar products and features .Buyers have a high bargaining power due to the availability of information ,high switching costs ,and high product differentiation .Buyers can easily compare prices ,quality ,and performance of different cars and choose the best option for their needs .Cars also face the threat of substitutes ,such as public transportation ,bikes ,or car-sharing .

To cope with high bargaining power of buyers ,car manufacturers need to segment their market and offer different value propositions to different customer groups .Some of the strategies they can use are :

• Offering luxury products, such as design, comfort, or prestige
• Providing functional products, such as reliability, safety, or fuel efficiency
• Creating innovative products, such as electric, hybrid, or autonomous cars
• Developing loyal customers, such as brand advocates, fans, or enthusiasts
• Expanding global presence, such as emerging markets, new regions, or new segments

6. Fast Food Industry

The fast food industry is saturated and competitive ,with many players offering similar products and services .Buyers have a high bargaining power due to the low switching costs ,high price sensitivity ,and diverse preferences .Buyers can easily switch from one fast food outlet to another based on their convenience ,price ,quality ,and health .Fast food also faces the threat of substitutes ,such as home-cooked meals ,restaurants ,or grocery stores .

To deal with high bargaining power of buyers ,fast food outlets need to differentiate themselves from their competitors and create loyal customers .Some of the strategies they can use are :

• Offering healthy products, such as salads, wraps, or smoothies
• Providing convenient services, such as drive-through, delivery, or online ordering
• Creating a fun experience, such as games, toys, or playgrounds
• Building a strong brand image, personality, and reputation
• Listening to customer feedback and improving customer satisfaction

7. Hotel Industry

The hotel industry is diverse and competitive, with many players offering different types of accommodation and services. Buyers have a high bargaining power due to the availability of information, low switching costs, and high product differentiation. Buyers can easily compare prices, quality, and location of different hotels and choose the best option for their needs. Hotels also face the threat of substitutes, such as Airbnb, hostels, or camping.

To overcome high bargaining power of buyers, hotels need to segment their market and offer different value propositions to different customer groups. Some of the strategies they can use are:

• Offering luxury products, such as design, comfort, or amenities
• Providing budget products, such as price, location, or cleanliness
• Creating niche products, such as theme, style, or culture
• Developing loyal customers, such as rewards, memberships, or partnerships
• Enhancing customer service, such as personalization, hospitality, or quality

Tips

• Bargaining power of buyers is one of the five forces that shape the competitive environment of any industry.
• Bargaining power of buyers refers to the ability of customers to negotiate lower prices, better quality, or more services from the sellers.
• Bargaining power of buyers depends on various factors, such as switching costs, price sensitivity, product differentiation, availability of information, and availability of substitutes.
• Bargaining power of buyers affects profitability and strategy by influencing the price that sellers can charge for their products and services and the level of competition in the industry.
• Sellers can deal with high bargaining power of buyers by differentiating their products and services from their competitors, creating loyal customers, segmenting their market, increasing switching costs, and reducing price sensitivity.

Bargaining Power of Buyers: Examples and Implications for Industries

Bargaining power of buyers refers to the ability of customers or consumers to influence the prices, quality and service of the products or services they purchase. Buyers have high bargaining power when they have many choices, low switching costs, and can easily backward integrate. Buyers have low bargaining power when they have few choices, high switching costs, and cannot easily backward integrate.

Examples of High Bargaining Power of Buyers

• In the real estate sector, buyers have high bargaining power because they can compare prices across websites and brokers, negotiate with sellers, and choose from a variety of properties. The availability and accessibility of market information also enhances the bargaining power of buyers.
• In the online retail industry, buyers have high bargaining power because they can easily switch between different platforms, compare prices and reviews, and access a wide range of products. The low barriers to entry and the presence of substitutes also increase the bargaining power of buyers.
• In the airline industry, buyers have high bargaining power because they can choose from many airlines, compare fares and schedules, and book flights online. The threat of new entrants and the high price sensitivity of customers also increase the bargaining power of buyers.

Examples of Low Bargaining Power of Buyers

• In the pharmaceutical industry, buyers have low bargaining power because they have limited choices, high switching costs, and depend on the quality and safety of the drugs. The high barriers to entry, the patent protection, and the regulatory requirements also decrease the bargaining power of buyers.
• In the automobile industry, buyers have low bargaining power because they have high switching costs, need financing and maintenance, and cannot easily backward integrate. The high capital intensity, the brand loyalty, and the product differentiation also decrease the bargaining power of buyers.
• In the software industry, buyers have low bargaining power because they have high switching costs, need compatibility and integration, and cannot easily backward integrate. The network effects, the intellectual property rights, and the innovation capabilities also decrease the bargaining power of buyers.

Implications for Industries

The bargaining power of buyers has significant implications for the profitability and competitiveness of industries. When buyers have high bargaining power, they can exert pressure on sellers to lower prices, improve quality, or offer better service. This can reduce the profit margins, market share, and growth potential of sellers. When buyers have low bargaining power, they have less influence on sellers and have to accept the prices, quality, or service offered by sellers. This can increase the profit margins, market share, and growth potential of sellers.

Therefore, it is important for businesses to understand the factors that determine the bargaining power of buyers in their industry and to develop strategies to cope with them. Some possible strategies are:

• Differentiating products or services to create customer loyalty and reduce price sensitivity
• Building long-term relationships with customers to increase switching costs and reduce backward integration
• Offering value-added services or bundles to increase customer satisfaction and retention
• Expanding into new markets or segments to reduce dependence on a few buyers
• Collaborating with suppliers or distributors to increase access to distribution channels or inputs

Frequently Asked Questions

Q: What is bargaining power of buyers?
A: Bargaining power of buyers is the ability of customers to negotiate lower prices, better quality, or more services from the sellers.

Q: What factors affect bargaining power of buyers?
A: Some of the factors that affect bargaining power of buyers are:

• Number of buyers and sellers
• Switching costs
• Price sensitivity
• Product differentiation
• Availability of information
• Availability of substitutes

Q: How to reduce bargaining power of buyers?
A: Some of the ways to reduce bargaining power of buyers are:

• Differentiate your products and services from your competitors
• Create loyal customers and increase customer retention
• Segment your market and target specific customer groups
• Increase switching costs for your customers
• Reduce price sensitivity and increase perceived value

Q: How does bargaining power of buyers affect profitability?
A: Bargaining power of buyers affects profitability by influencing the price that sellers can charge for their products and services. The higher the bargaining power of buyers, the lower the price that sellers can charge, and vice versa.

Q: How does bargaining power of buyers affect strategy?
A: Bargaining power of buyers affects strategy by influencing the competitive environment of any industry. The higher the bargaining power of buyers, the more competitive the industry is, and vice versa. Sellers need to adapt their strategies accordingly to cope with high or low bargaining power of buyers.

Reference:

https://mpra.ub.uni-muenchen.de/44953/1/MPRA_paper_44953.pdf

https://econpapers.repec.org/bookchap/oxpobooks/9780198288817.htm

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